Marketing as a key investment
Marketing efforts cost money. For some small businesses or new start-ups, it can be hard to justify spending the cash. It can also be a wise move to make and the best use of spend to and for a business too. Investing in marketing today is just that, an investment which should be getting your firm a return. If you invest £1 and that produces £2 in return then it is fair to say you’ve done very very well.
When most people think about what marketing is, their mind’s eye leaps to creative campaigns, brands, advertisements and promotions. However, marketing covers a much wider remit than just promotional communications. In fact, these are actually one of the last stages in the marketing strategy process. The starting point for any sound marketing strategy is the financial metrics, the maths behind the marketing.
Working out ROI
So, what does return on investment actually mean? Well, in simple terms, it is a measure of how much better off you are afterwards as opposed to doing nothing! If you invest £1000 in marketing and it generates £3000 profit (please note you have to measure profit and not just sales) then you have generated 3 times the return or 300% ROI. If you invest the same money and only generate £750 profit, you are down £250, so you have only generated 75% ROI. Basically 100% ROI is the equivalent of breaking even.
Getting a good baseline idea
A crucial part of any successful marketing agency team is the ability to measure campaign success. Also to establish baselines that can serve as a reference for future efforts. With this in mind, accurately measuring ROI helps marketers do both. By understanding the impact of individual campaigns on overall revenue growth, marketers can better identify the right mix of offline and online campaign efforts. Moreover, measuring ROI consistently allows marketers to establish baselines. All of this is to quickly gauge their success and adjust efforts in order to maximise impact.
Getting a good level of ROI
The rule of thumb for marketing ROI is typically a 5:1 ratio. This is with exceptional ROI being considered at around a 10:1 ratio. Anything below a 2:1 ratio is considered not profitable. All of this is as the costs to produce and distribute goods/services often mean organisations will break even. This is with their spend and returns. However, costs and overhead lower than 50 percent of the sales price can see profits on their efforts at lower ratios. Because every organisation is different, it’s important to consider the unique overhead costs. Also you margins, and industry factors and standards unique to the sector.
Building your brand is key to driving sales, boosting partnerships and accelerating growth. You want customers to trust your name, eager to learn more and be proud they can rely on your brand to run their business. Consider brand building as a long-term commitment and investment — not an expense.